Are my contracts legal?
A few clients have reached out to ask about the National Labor Relations Board’s (NLRB) recent legal opinion on non-compete clauses/agreements and what it means for their existing contracts and moving forward.
We talk a lot about protecting your business and business assets (i.e. intellectual property) here, so it makes sense to briefly explain what all of this means for a small business owner, since using non-competes is just one tool to managing risk for business owners ready-to-hire or outsource because hiring and outsourcing is important for any business owner that wants to grow and scale.
On May 30th, the NLRB’s Office of General Counsel issued a legal opinion regarding non-compete agreements which concluded that overly broad non-compete agreements are unlawful and violate the National Labor Relations Act (NLRA). According to the NLRB, non-compete agreements between employers and employees may interfere with employees’ rights to organize (i.e. collective bargaining) under Section 7 of the National Labor Relations Act (the Act), and the enforcement by employers of non-competes may violate Section 8(a)(1) of the Act.
The full legal opinion is HERE, but the long and short of it is expect increased scrutiny around these agreements and clauses. Currently, there are several states that have banned employee non-compete agreements. Business owners must check that their employment agreements do not include overly broad non-compete clauses.
In other words (and this is a very high-level summary), non-compete clauses/agreements should not be a written in a way that an employee could reasonably interpret that they would be barred from, or limited in, pursuing other employment opportunities. The NLRB’s opinion did note circumstances where non-compete agreements could be lawful. For example, non-compete agreements in true independent-contractor relationships are permitted.
Obviously, hiring employees or contractors can bring significant benefits to small businesses, such as increased productivity, access to specialized skills, the ability to scale, and freeing up the business owner to step into the leader and visionary role. But hiring also comes with risks.
Small business owners must proactively safeguard proprietary information and comply with various labor and employment laws. If you’re unsure whether your agreement is enforceable, or you need help with risk management in general, get in touch with us HERE.